A new World Bank analysis of South Africa’s 20 000-plus exporters documents a worrying trend of underperformance over the past decade and highlights several structural and infrastructure constraints to the country meeting the National Development Plan’s (NDP’s) objective of growing export volumes by 6% a year – an aspiration designed to support average yearly growth of 5.4% and the creation of 11-milion jobs by 2030.

World Bank lead economist Catriona Purfield, who along with coauthor Thomas Farole presented the findings in Pretoria on Tuesday described the performance as “far from stellar”. The export performance, which was the main theme of the bank’s fifth ‘South Africa Economic Update’, was shown to be particularly weak when compared with the country’s Brics counterparts of Brazil, Russia, India and China, as well as other emerging markets such as Turkey and Chile.

Purfield warned that, while the weaker rand should result in an export recovery over the medium term, there would be a lag before domestic exporters would be in a position to respond to the new price signal. South Africa was also importing intermediate and capital goods for its infrastructure projects, which “prevents an import response to a more depreciated exchange rate”.

She stressed, too, that unless power constraints were addressed, logistics charges were made more competitive and labour-related disruptions in key export sectors were reduced, the full potential of the more competitive currency would not be realised.

The report highlighted, for instance, that South African freight container tariff charges were three times the global level and that the country ranked a lowly 150th out of 189 economies on the ‘2014 Doing Business’ indicator related to electricity access. Moreover, labour instability had undermined manufacturing and mining exports over the past few years.

These factors, together with the fallout from the US Federal Reserve’s tapering of its quantitative easing programme and softer commodity prices, were highlighted as key risk factors to the bank’s 2014 growth outlook for South Africa. The bank revised the figure to 2.7%, or 0.5 of a percentage point lower than its July 2013 forecast.

POOR PERFORMER

The study showed that Africa’s largest economy exported about 5 000 mineral and nonmineral products, covering about 90% of all possible goods classified for trade. However, export growth had stagnated in real terms between 2005 and 2011 and also lagged the middle-income country average.

“Since 2005, in real US dollar terms, the volume of South African exports has only risen by 0.6% a year. This is at a time when other Bric countries have been making immense inroads into global markets,” Purfield reported.

From the late 1990s, for example, China had increased its global share of world exports sixfold, Russia threefold and India twofold. Had South Africa simply grown its exports at the middle-income country average, its exports would already be about two-and-half-times larger.

Mineral exports, which comprise about half of all South African exports, benefitted from a rise in prices, but volumes remained flat. South Africa’s nonmineral exports rose at a far slower rate than most of its peers, while the country’s services exports were “far below what its level of development would predict and have grown slowest among those of its peers since 2005”.

“Super-large firms” also dominated the export landscape, with 93% if South African exports arising from only 5% of its exporting firms, which represented a “far higher” concentration than was the case in many other countries.

In addition, these large companies were losing their global competitiveness, as measured by the number of markets being penetrated and the number of new export products emerging – factors that the bank felt reflected a loss of dynamism and innovation. The country also ‘underexported’ to countries such as Brazil, India, and populous African countries such as Nigeria, Ethiopia and Egypt.

EXPORT BASKET MISALIGNMENT

A misalignment had also emerged between South Africa’s skills base and the nature of its export basket, which was “high-tech, high skilled and capital intensive” in nature and more sophisticated than almost all of its peers. “This suggests to us that South Africa is playing against its comparative advantage in exports – it’s not taking advantage of its large pool of unskilled labour,” Purfield said. Country’s that produced a similar basket of high-tech goods typically had 67% of their workforce with post-secondary education as opposed to South Africa’s 21%.

The report also highlighted a shift in the destination of South Africa exports, from Organisation for Economic Cooperation and Development countries, which accounted for nearly 60% of all exports at the beginning of the century, to the other Brics countries, which had grown from less than 5% to more than 19%.

But the rest of Africa had emerged as South Africa’s main export driver, with a share that had grown from 19% to almost 29%, overtaking the European Union, which had fallen from more than 41% to just 28%. Including Southern African Customs Union exports, Africa currently accounted for around half of South Africa’s nonmineral exports, while the rest of the continent was also the most important destination for South Africa’s services exports.

It was also in the Africa region that the bank saw the highest export growth potential for South Africa, despite the fact that exports to the rest of the continent were currently smaller and shorter-lived than exports to other markets. In fact, Farole argued that deeper regional integration would be critical to meeting the NDP’s export growth goal.

Promoting such integration could generate the “right conditions” for the emergence of ‘Factory Southern Africa’, or a regional value chain that could feed into global production networks. However, actual implementation of existing or upcoming regional agreements, together with cross-border infrastructure and trade facilitation programmes, would be critical to realising the concept, Farole said.

South Africa also had to prioritise higher levels of domestic competition to increase efficiency and productivity. “This would lower input costs and tip incentives in favour of exporting by reducing excess returns in domestic markets.”

The report also stressed the importance of alleviating infrastructure bottlenecks, as progress would be “especially beneficial for small and medium-size exporters and nontraditional export sectors, which these costs tend to hit harder”.

“Progress on all three fronts would help catapult South Africa toward faster-growing exports, allowing it to realize the faster, more inclusive, job-intensive growth articulated in the NDP,” the report concluded.